Weekend catch-up: A G20 special

With the Brisbane G20 Summit on this weekend, The Interpreter's usual weekend catch-up makes way for a 'best of' our G20 material from the past year. The Lowy Institute's G20 Studies Centre has been publishing on all aspects of the Summit, including what the presidency has meant for Australia, as well as agenda items like global inequality and economic growth, financial stability and climate change.

Australia's presidency

This week, Lowy Institute Executive Director Michael Fullilove and Research Fellow Tristram Sainsbury reflected more broadly on what leadership of the G20 has meant for Australia's place in the world:

Under Australia's stewardship, a tight and focused agenda on economic fundamentals has seen important progress made on financial regulatory reforms and in modernising the international tax system. These initiatives will help build economic resilience and safeguard the global economy and national budgets from future shocks.

Just as Australia has done well on the UN Security Council, we have made good use so far of our G20 presidential year. Both cases provide a rejoinder to those who argue that as Australians we should know our place and keep our heads down, focused on the immediate neighbourhood.

What is absent from Australia's overview for the G20 in 2014 is the need to deal with negative spillovers — where the actions of one country can have profound impacts elsewhere. As identified by the IMF, policy spillovers may well turn negative in 2014, particularly with the exit from quantitative easing by central banks in some of the major economies. With the volatility that may come from the tapering of quantitative easing likely to be a major concern for emerging markets in 2014, it is unfortunate that there is no mention of this, even in general terms, in Australia's outline for the G20.

A major topic will be progress in preparing reform blueprints to support the 'aim' endorsed at the February meeting to lift global growth by a further 2% over 5 years. Reports suggest the first 'sketches' of the reform agendas collected by G20 officials are not ambitious enough. One indicates that ministers will give a mandate to their officials to add new measures in order to reach 2%. If only it was so simple!

The required reforms are contentious and difficult and governments have to win domestic political battles for them to be implemented. For example, will Australian officials include an increase in the GST rate in Australia's growth plan? It will require much more than mandating officials to be more ambitious.

Inequality

So inequality should be on the agenda for the Brisbane Summit, although it is not yet acknowledged as being an issue in the material and the statements coming from the G20 presidency. But when the leaders discuss the measures in their growth plans (such as labour reforms, social safety nets, education, the role of minimum wages, infrastructure investment, tax reform and so on), the impact on inequality should be a consideration. Moreover, the work on combating tax evasion and avoidance should also be anchored in concerns over promoting greater equality within economies. And the G20's development agenda should be focused on reducing income disparities between economies, because that is good for global growth

G20 Studies Centre Research Associate Hugh Jorgensen has also made the case that inequality should take a more central role at the discussions:

Yet on a purely public-relations basis, the absence of more explicit references to inequality thus far seems to be oddly out of step with global momentum around the issue. Prime Minister Tony Abbott spoke at the World Economic Forum in Davos about the need for a G20 that reflects the concerns of 'the people, our masters.' As it happens, Pew polling indicates around 70% of the people in G20 economies like Italy, Turkey, Argentina, South Africa, India and Brazil regard 'the gap between the rich and poor as a very big problem' (and around half of respondents in the UK, US, Mexico, Russia – Australia was not included). And as far as issues that concern the general public go, inequality has much more currency than say, the G20's stance on the US Federal Reserve's drawing down of the third round of quantitative easing policy (notwithstanding the latter's significance).

Infrastructure

One of the lasting legacies of Australia's time hosting the G20 may be a new global infrastructure hub based in Sydney. Hugh Jorgensen and Tristram Sainsbury on why this may be a distraction:

As a self-declared 'infrastructure Prime Minister', Tony Abbott is clearly keen to publicise Australia's infrastructure experiences to the world, and has accordingly promised to put up most of the funding for the Hub. However there is a risk the Hub will encourage future G20 presidencies to pursue the establishment of 'legacy monuments' before carefully justifying precisely how they will deliver substantive outcomes. If the Hub falls into this category – and hopefully it won't — then the focused and streamlined G20 agenda promised for 2014 will have delivered a low-value outcome. It would be unfortunate if the true cost of the Hub comes in the form of the opportunity cost of the G20's precious time and energy, which could have been targeted towards more pressing parts of the global growth agenda.

The infrastructure bottleneck is often in project appraisal and legal issues such as land acquisition, rather than financing (although funding is always included on the list of issues to be resolved). Also high on the list of problems for emerging economies is the low efficiency in terms of the use of infrastructure.

There is no denying the importance of the Fund's main message that there are many infrastructure projects which are not only viable (especially at today's low global interest rates), but which would also spur lagging global growth. This seems likely to be a widely held view at Brisbane's G20 meeting. Improving global growth while at the same time fixing the infrastructure shortage is a compelling idea. But, as usual, 'between the idea and the reality...falls the shadow'. The G20 needs to turn the generalities into operational prescriptions, like having the World Bank restore its detailed project appraisal capacity and for the credit-rating agencies to improve their capability to sort the beneficial projects from the lemons.

Climate policy

There has been much debate over whether climate policy should be discussed at the G20. Is it the group's role? Would it make any difference? The landmark announcement by China and the US this past week may put that debate to rest. Mike Callaghan on climate policy and Australia's G20 in March:

Can Australia avoid climate change being discussed in the G20 in 2014? It is reported that when foreign governments and stakeholders have broached climate change in G20 lead-up meetings, Australian officials have told them the issue is not a priority and suggested that other topics be discussed. Apart from the fact that many others believe climate change is a priority, a problem Australia faces is that climate change has repeatedly been included in G20 leaders' communiques.

The key point is that climate change is an important issue, and the G20 should address it in so far as it can add value in a way other international institutions can't. As the G20 is a leaders' forum, the value is that it can provide a space for G20 leaders to talk about climate change in an informal and frank manner. If that doesn't happen, then it would be a missed opportunity, but all the signs suggest it will happen. The main game in climate change is the Paris Negotiations in 2015, and any nudge the G20 can give to the build-up for COP-21 is to be welcomed.

Russia

After the tragedy of MH17, there was significant discussion in Australia and elsewhere over Russia's continuing role in the G20. Mike Callaghan wrote on the BRICS push for Russia's inclusion:

On 24 March the BRICS foreign ministers issued a joint statement effectively saying that Russia should not be excluded from the Brisbane Summit. The BRICS ministers said they had noted with concern 'the recent media statement on the forthcoming G20 Summit to be held in Brisbane in November 2014. The custodianship of the G20 belongs to all Member States equally and no one Member state can unilaterally determine its nature or character'. When the Russian foreign minister was asked to comment on media reports that Australia may fail to invite Russia to the G20 summit, he referred to the joint statement by BRICS ministers and said 'we altogether not just Australia formed the G20'.